Types of Depreciation

There are several methods that accountants commonly use to depreciate capital assets and other revenue-generating assets. These are straight-line, declining balance, double-declining balance, sum-of-the-years' digits, and unit of production. We've highlighted some of the basic principles of each below.


Straight-Line Depreciation

Straight line depreciation is generally the most basic depreciation method. It includes equal depreciation expenses each year throughout the entire useful life until the entire asset is depreciated to its salvage value.



Declining Balance

The declining balance method is an accelerated depreciation method. This method depreciates the machine at its straight-line depreciation percentage times its remaining depreciable amount each year. Because an asset's carrying value is higher in earlier years, the same percentage causes a larger depreciation expense amount in earlier years, declining each year.


Double-Declining Balance (DDB)

The double-declining balance (DDB) method is another accelerated depreciation method. After taking the reciprocal of the useful life of the asset and doubling it, this rate is applied to the depreciable base—its book value—for the remainder of the asset’s expected life. Thus, it is essentially twice as fast as the declining balance method.


Sum-of-the-Years' Digits (SYD)

The sum-of-the-years' digits (SYD) method also allows for accelerated depreciation. Start by combining all the digits of the expected life of the asset.
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